Commentary on Washington State law and how it Relates to real Estate

Robert P. Dickson

Robert P. Dickson

Robert P. Dickson is an partner at Dickson Law Group, PS and a member of its real estate and environmental law practice groups. Though most of his work is carried out through commercial litigation, he focuses on real estate, corporate, and environmental law. Much of his practice consists of representing clients in advancing their real property rights against public as well as private entities. Mr. Dickson also teaches a real estate litigation course at the Seattle University School of Law. His experience includes: Easements Adverse possession and trespass Boundary line adjustments Unlawful detainer Land use/zoning Foreclosures Landlord/tenant Real estate transactions (e.g. Deeds of Trust, Promissory Notes, Real Estate Contracts, etc.) Model Toxic Controls Act (including CERCLA), and other environmental regulations Corporation and limited liability company formation and representation Administrative appeals Professional Associations Tacoma/Pierce County Bar Association Washington State Bar Association Young Lawyers Association J. Ruben Clark Society Master Builders Association Associated General Contractors Education Juris Doctorate, The George Washington University Law School, 2007 Bachelor of Arts, Brigham Young University, 2003 Bar Admissions Washington State Bar Association Western Federal District Court of the State of Washington Publications Zoning and Land Use Petition Act, Land Use and Environmental Law Chapter XXIII, Washington Lawyers Practice Manual Real Property Practice Chapter XIV, Section 9, Foreclosure and Realization, Washington Lawyers Practice Manual

The redefining of “Decommission” in the Model Toxics Control Act

Commercial property owners sometimes run across the unexpected on their property during excavations and/or renovations. One of the most difficult (and feared) situation is that of locating an underground fuel storage tank on your property. The reason why this can be challenging to a landowner is because of how stringent Washington State’s environmental regulations are. The Model Toxics Control Act (“MTCA”, or “MoTCA” as it is often called) provides the statutory authority to demand clean-up/remediation of these underground tanks. The Washington Administrative Code, section 173-340, outlines with specificity the limitations to remediation of these tanks. On March 3, 2010, according to a Board of Health Resolution No. 2010-4225, the manner in which tanks are “decommissioned” was altered.

Up until March 3, 2010, an option that property owners had in decommissioning these tanks was to extract whatever fuel remained, then fill it with inert material. The tank would stay underground, but it would be harmless as it would contain no fuel and would be full of soil. This is no longer an option. “Decommissioning” now means that the tank must be fully removed from the property. This is significant, as the costs involved in removing a tank vs. filling it with inert material, is substantial.

Suit filed against Bank of America over alleged failure to disburse TARP funds

OLYMPUS DIGITAL CAMERAA Seattle law firm, Hagens Berman Sobol & Shapiro, has filed a lawsuit against Bank of America over its apparent failure to satisfactorily distribute TARP funds to stem foreclosures.
According to a press release by Hagens Berman, Bank of America has made an “affirmative decision to slow the loan modification process for reasons that are solely in the bank’s financial interests.”
It will be interesting to monitor how this suit develops, as it strikes at the core issue of whether the government’s injection of capital into the banking market actually resulted in a positive result.

If at first you don’t succeed, try, try again! The federal government takes another shot at curbing the foreclosure crisis

After the first attempt by the Obama Administration to stem the foreclosure tide fell flat (only a fraction of eligible home owners facing foreclosure secured permanent modifications), the federal government is proposing a broad new initiative.

The New York Times reports that the government will now try to reduce the principal for home loan modifications.  To do this, it intends to provide a program by which those who are “underwater” (home value less than what is owed) can refinance into a government-backed mortgage.

This is significant because most (if not all) loan modifications up to now consisted of banks largely shifting interest rates and extending payment terms.  Thus, the actual principal of the loan was never really effected, merely the interest.  As a result, the underlying problem which plagued a lot of homeowners was never truly addressed (that they simply had purchased homes which were beyond their budget).

To fund this new program, the government intends to utilize $50 billion funds previously allotted to the Troubled Asset Relief Program, more commonly known as “TARP.”  Though reaction from many non-profit groups is generally positive, it remains to be seen whether banks will cooperate with the new program.

How subcontractors, laborers, mechanics, and suppliers are protected on public projects by RCW 39.08

Public and private construction projects are different in many respects, however chief among those differences is the party that owns the property subject to the contract.  In other words, when contractors enter into a contractor with a municipality (County, City, State, agency, etc.) any subcontractors, material suppliers, laborers, or mechanics to that project are at a disadvantage.  Why, you ask?  Because unlike private property, the law prohibits subcontractors, material suppliers, laborers, and mechanics from recording liens on public property.

This is important because these second-tier contract participants are therefore unable to protect themselves should the general contractor refuse to pay them for their services.  Unfortunetly, this puts them in an impossible position, as they cannot gain payment through a lien on public property, but there is often little to no amount left in the general contractor’s construction bond that would satisfy what these subcontractors are owed.

In response to this issue, Washington State enacted RCW 39.08, a statute which extends certain protections to subcontractors, laborers, material suppliers, and mechanics who do work for a general contractor on a public project.  Here is what it does:

RCW 39.08.10 — Municipalities must require that general contractors to public projects have a “good and sufficient bond.”  This bond is to be filed with the clerk or comptroller and is intended to stand as a surety in case the general neglects payment to all “laborers, mechanics, and subcontractors and material suppliers…”

RCW 39.08.15 — If the bond is not present, or is insufficient, then the municipality becomes “liable to the [laborers, mechanics, and subcontractors and material suppliers] to the full extent and for the full amount of all such debts so contracted by such contractor.”

The case law supports these protections —

Puget Sound Elec. Workers Health and Welfare Trust Fund v. Merit, 123 Wash. 2d 565, 870 P.2d 960 (1994) states that public works lien statutes require general contractors on public projects execute and deliver a bond to the public agency in order to protect all laborers, mechanics, subcontractors, and material suppliers performing the contract work.

National Sur. Co. v. Bratnober Lumber Co., 67 Wash. 601, 122 P. 337 (1912) states that statutory requirements for contractors on municipal improvements give bonds for payment of laborers and materialmen in order to secure claims not protected by lien laws.

Smith v. Town of Tukwila, 118 Wash. 266, 203 P. 369 (1922) also states that if the bond does not meet the statutory requirements, then it is insufficient and not a statutory bond (which by implication would satisfy the requirements outlined in RCW 39.08).

In short, if you are a subcontractor, laborer, material supplier, or mechanic doing work on a public job, and the general contractor refuses to pay your invoices, look to the contractor’s bond.  If it is insufficient, then you may have a claim against the city/county/state is paying for the project.

Liquidated damages clauses in construction contracts

If you are ever involved in property development, a liquidated damages clause is something you ought to be familiar with. What is a “liquidated damage”? It is basically an amount of damage that contracting parties agree to during the formation of the contract, which is applied if the agreement is breached. In other words, rather than the parties trying to calculate damages after a breach happens, they pre-determine the damage amounts.

These clauses are usually favored and often upheld in Washington State. Ashley v. Lance, 80 Wash. 2d 274, 280, 493 P. 2d 1242, 62 A.L.R. 3d 962 (1972). To determine whether they are enforceable, Washington courts generally require the following two factors to be satisfied:

(1) Liquidated damage must be reasonable (just compensation for the harm caused by the breach);

(2) It must be very difficult or impossible to determine the harm beforehand.

Walter Implement, Inc. v. Focht, 107 Wash. 2d 553, 559 (1987).

A liquidated damages clause will NOT be upheld if it is show that the provision is simply a penalty or is otherwise unlawful. Jenson v. Richens, 74 Wash.2d 41, 47, 442 P.2d 636 (1968).

In short, parties can pre-set what a contract breach will cost the breaching party. This allows for a clear assessment of damages, provided that it is not a penalty. The liquidated damages must not only be reasonable when compared to the harm of the breach, but the harm caused must be difficult or impossible to ascertain.

What can a tenant do when a landlord breaches the rental or lease agreement?

For a tenant to exercise his or her remedial rights under the Landlord-Tenant Act (RCW 59.18), the following requirements must be satisfied:

1.  Tenant must be current on rent

2.  Tenant must give landlord notice of any defective condition in writing (the landlord then has statutorily-outlined time requirements in which to correct the defects.  RCW 59.18.070).  If the landlord is not given notice, the court will not expect him to have fixed the defect(s).

3.  Tenant must not prevent or thwart the landlord’s attempt at remedying the defect

4.  If the landlord still does not correct the defect, the tenant may elect one of the following remedies:

(a) terminate rental agreement, and vacate; (b) commence action in court; or (c) fix the defect and deduct the cost from the required rental payment; (d) seek a third party arbitrator or court determination which assesses the reduction of rental value of the property; (e) in the case of substantial danger to the health and safety of the tenant, he or she can request that a government conduct an inspection on the premises.  The inspector will then certify whether in deed the property is sufficiently dangerous, thus verifying whether withholding rental payment is justified; (f) seek authorization from a court or arbitrator to end the tenancy — this is only authorized when the defects are so drastic that they cannot be corrected.

For a more detailed description of the above guide, look to RCW 59.18.  It is important to note that tenants must follow these requirements strictly.  If a landlord can show that the RCW was not followed, he may defeat the tenant’s actions in attempting to correct the deficiency — meaning that the tenant may have violated the lease and is liable for subsequent damages.

Above all, if you are a tenant, be sure to keep paying rent!  The court will not go along with your actions IF it is shown that you are either deficient in the rent owed, or have unnecessarily withheld amounts that you rightfully owe.

Landlords — don’t forget about the deposit!

In a recent case, I encountered an interesting issue regarding deposits held by landlords.  Specifically, what happens to a tenant’s deposit once the landlord/tenant relationship has ended (either the tenant has moved out or abandoned the property, or, the landlord has removed him or her)?  In the Landlord-Tenant Act, RCW 59.18.280 outlines what needs to happen —

“Within fourteen days after the termination of the rental agreement and vacation of the premises or, if the tenant abandons the premises as defined in RCW 59.18.310, within fourteen days after the landlord learns of the abandonment, the landlord shall give a full and specific statement of the basis for retaining any of the deposit together with the payment of any refund due the tenant under the terms and conditions of the rental agreement. No portion of any deposit shall be withheld on account of wear resulting from ordinary use of the premises. The landlord complies with this section if the required statement or payment, or both, are deposited in the United States mail properly addressed with first-class postage prepaid within the fourteen days.

The notice shall be delivered to the tenant personally or by mail to his last known address. If the landlord fails to give such statement together with any refund due the tenant within the time limits specified above he shall be liable to the tenant for the full amount of the deposit. The landlord is also barred in any action brought by the tenant to recover the deposit from asserting any claim or raising any defense for retaining any of the deposit unless the landlord shows that circumstances beyond the landlord’s control prevented the landlord from providing the statement within the fourteen days or that the tenant abandoned the premises as defined in RCW 59.18.310. The court may in its discretion award up to two times the amount of the deposit for the intentional refusal of the landlord to give the statement or refund due. In any action brought by the tenant to recover the deposit, the prevailing party shall additionally be entitled to the cost of suit or arbitration including a reasonable attorney’s fee.

Nothing in this chapter shall preclude the landlord from proceeding against, and the landlord shall have the right to proceed against a tenant to recover sums exceeding the amount of the tenant’s damage or security deposit for damage to the property for which the tenant is responsible together with reasonable attorney’s fees.”

The important thing to remember is that the landlord has a mere 14 days to provide either an explanation of why the deposit has not been tendered (or to ask for more time).  After that 14-day window, the landlord is functionally barred from making any defenses to keeping the money and may actually have to pay more.  So, to all those landlords out there: be sure to take care of the deposit issue within that 14-day deadline.

Understanding debt-to-income ratios and how they relate to loan modifications

In determining whether to grant a loan modification, there are generally three central factors that a lender takes into consideration: 1) the financial hardship of the borrower; 2) whether the borrower is currently delinquent on mortgage payments or is at risk of becoming delinquent in the immediate future; and 3) the borrower’s debt-to-income ratios. While the first two factors seem relatively straightforward, understanding your debt-to-income ratios is oftentimes confusing and may seem complex.

What is a debt-to-income ratio?

Simply put, a “debt-to-income ratio” (DTI) is the percentage of a homeowner’s grossmonthly income that goes toward paying the homeowner’s debts. In the context of a home loan modification, two DTI ratios are considered: a “front-end” DTI ratio and a “back-end” DTI ratio.

Why are Your Debt-to-Income Ratios Important?

Because lenders want to avoid as much risk as possible, they will pay special attention to your DTI ratios. In essence, lenders use your DTI ratios as indicators of your ability to repay your debts. Therefore, if your DTI ratios are low, lenders may be more inclined to assist you because they believe that you have a higher probability of repaying your debts. On the other hand, if your DTI ratios are high, lenders may be less likely to assist you because they believe you have a lower probability of repaying your debts (and, therefore, you are a greater risk).

Because your DTI ratios play such a significant role in the home loan modification process, it is a good idea for you to do a rough calculation of your own front-end and back-end DTI ratios before seeking a loan modification. By doing your own calculation, you can estimate whether a lender is more likely or less likely to grant you a loan modification.

How Do You Calculate Your Front-end DTI Ratio?

To calculate your front-end DTI ratio, you divide your total “monthly house payment” by your gross monthly household income:

           Monthly House Payment ÷ Gross Monthly Household Income= Front-end DTI Ratio

Your “monthly house payment” is often referred to as “PITIA.” “PITIA” is defined as principal, interest, taxes, insurance (including homeowners insurance and hazard and flood insurance) and homeowners association fees (if applicable). Note that if you pay property taxes, insurance, and/or homeowners association fees separately from you mortgage principal and interest, these expenses need to be added to your total “monthly house payment.”

Examples

1)    Mr. Smith’s monthly house payment is $1,100. Mr. Smith is a carpenter and his gross monthly household income is $2,700. To figure out his front-end DTI ratio, Mr. Smith takes the amount of his monthly house payment ($1,300) and divides it by the amount of his gross monthly household income ($2,700). Mr. Smith’s front-end DTI ratio is 40.7%, because $1,300 ÷ $2,700= 40.7%.

2)    Mr. and Mrs. Baker’s monthly house payment is $1,900. Mr. Baker is an electrician and his gross monthly income is $2,800. Mrs. Baker is a seamstress and her gross monthly income is $1,200. Combined, Mr. and Mrs. Baker’s gross monthly household income is $4,000. To figure out their front-end DTI ratio, the Bakers take the amount of their monthly house payment ($1,900) and divide it by the amount of their gross monthly household income ($4,000). The Bakers’ front-end DTI ratio is 47.5%, because $1,900 ÷ $4,000= 47.5%.

How Do You Calculate Your Back-end DTI Ratio?

To calculate your back-end DTI ratio, you add up all of your monthly debt payments (do not include any expenses that are not listed on your credit report), which may include:

·      Your “house payment” or PITIA (this was used in calculating your front-end DTI)

·      Credit card payments

·      Automobile loan or lease payments

·      Alimony/child support

·      Educational/student loan payments

·      Any personal loans

·      Any other accounts reported in your credit reports

After adding all of these monthly debts up, you then take the total and divide it by your total gross monthly household income:

Monthly Debt Payments ÷ Gross Monthly Household Income= Back-end DTI Ratio

Examples

1)    Mr. Smith’s monthly debt payments come out to $1,700 ($1,100 for his monthly house payment, $300 for his car loan, and $300 for alimony). Mr. Smith is a carpenter and his gross monthly household income is $2,700. To figure out his back-end DTI ratio, Mr. Smith takes the amount of his monthly debt payments ($1,700) and divides it by the amount of his gross monthly household income ($2,700). Mr. Smith’s back-end DTI ratio is 62.9%, because $1,700 ÷ $2,700= 62.9%.

2)    Mr. and Mrs. Baker’s monthly debt payments come out to $2,300 ($1,900 for their monthly house payment, $200 for their car lease, and $200 in credit card payments). Mr. Baker is an electrician and his gross monthly income is $2,800. Mrs. Baker is a seamstress and her gross monthly income is $1,200. Combined, Mr. and Mrs. Baker’s gross monthly household income is $4,000. To figure out their back-end DTI ratio, the Bakers take the amount of their monthly debt payments ($2,300) and divide it by the amount of their gross monthly household income ($4,000). The Bakers’ back-end DTI ratio is 57.5%, because $2,300 ÷ $4,000= 57.5%.

3)    Ms. Garcia’s monthly debt payments come out to $1,600. Ms. Garcia is a civil engineer and her gross monthly income is $5,000. To figure out her back-end DTI ratio, Ms. Garcia takes the amount of her monthly debt payments ($1,600) and divides it by the amount of her gross monthly household income ($5,000). Ms. Garcia’s back-end DTI ratio is 32%, because $1,600 ÷ $5,000= 32%.

Why Do Your DTI Ratios Matter and What Should You Do?

Today, lenders have specific target ranges and limitations on allowable DTI ratios for loan modifications. Although your lender may have slightly differing DTI ratio targets and limitations, most lenders are willing to grant loan modification to homeowner’s whose DTI ratios are below 50%. Remember, lenders want to avoid risk and only want to extend loan modifications to homeowners who have a high probability of repaying their debts.

Therefore, it is a good idea for you to do your own initial front-end and back-end DTI calculations so that you can get a general sense of whether a lender is more likely or less likely to grant you a loan modification. When doing these calculations keep in mind that DTI ratios well below 50% are ideal. Doing these calculations can save you time in determining whether a loan modification is right for you or whether another option might be more advantageous to you in protecting your house.

As always, remember that the earlier you look into the requirements of loan modifications and begin the process, the better. Start by doing your own front-end and back-end DTI calculations and go from there. If you have questions, do not hesitate to ask for help. Also, remember that a qualified attorney who has experience in working with loan modifications can be extremely beneficial to you and can assist you in working directly with your lender and in protecting your interests.

Does the RCW mandate attorney’s fees awards in timber trespass cases? Appeals court in Bassani Farms v. Maddox says “no.”

One of Washington State’s greatest natural resources is its trees and forests. Given the abundance of this natural resource, Washington has enacted several statutes which govern accidental or intentional damage to and/or removal of timber on someone else’s property (without permission of course). These laws are set forth in RCW 4.24.630 and RCW 64.12.030.
Although both RCW 4.24.630 and RCW 64.12.030 deal with damage to and removal of trees, there has always been a conflict between these statutes. Namely, how does the court award damages to a prevailing party in an action when the trespasser damaged and/or removed trees, but did not injured the property? (Both RCW 4.24.630 and 64.12.030 discuss damages for timber trespass, yet 4.24.630 includes a provision for attorney’s fees).

MischwaldRCW 4.24.630 says that if a person goes onto another’s property without permission and removes or damages timber, that person is liable for treble damages and attorney fees. RCW 64.12.030, however, says that if a person goes onto another’s property without permission and removes or damages any tree, timber, or shrub, that person is liable only for treble damages—no attorney fees may be awarded.

Recently, in Bassani Farms, LLC v. Maddox, the Washington Appellate Court (Division III) offered some guidance on this conflict. For one, the Bassani Court asserted that RCW 64.12.030 requires no mental state and applies equally to intentional and negligent takings and damages to trees and shrubs. Second, the Bassani Court reiterated that RCW 4.24.630(2) expressly exempts any claims that fall under RCW 64.12.030’s language from being applied to RCW 4.24.630. The result is therefore, that prevailing claims pertaining ONLY to damage and/or removal of trees from a landowner’s property can only be awarded treble damages—no attorney fees can be awarded.

Ultimately, Bassani’s outcome may negatively impact on landowners whose trees have been damaged and/or removed and seek redress in court. In such cases, attorney fees may be substantial. Consequently, the possibility of recovering attorney fees may be equally, if not more, important to a landowner as is recovering treble damages. If courts are finding that a landowner’s claims apply under RCW 64.12.030 (which does not allow attorney fees), not RCW 4.24.630, landowners may be less likely to sue because they will not be awarded attorney fees and any other litigation-related costs.

Bankruptcy: what are my options?

For people experiencing severe financial difficulties and who are overwhelmed with debt, bankruptcy may be an important option. Whether difficult times are brought on by job loss, medical problems, family breakups, or even financial irresponsibility, bankruptcy can grant you much desired relief. Understanding some basic principles of consumer bankruptcy, however, is imperative in knowing which form of bankruptcy is appropriate.

Within bankruptcy law, there are several different “chapters.” Each “chapter” is specifically designed to help either individuals or businesses in eliminating, resolving, and/or repaying their debts. Selecting which bankruptcy chapter to proceed under, depends on the individual’s or business’s specific circumstances. For individuals (“consumers”) who are seeking relief through the bankruptcy process, two chapters are available: Chapter 7 and Chapter 13. These two bankruptcy chapters differ significantly and offer different results.
Chapter 7 Bankruptcy
Chapter 7 is commonly referred to as “liquidation bankruptcy.” When an individual proceeds under Chapter 7, a trustee is appointed by the bankruptcy court. The trustee then gathers all of the individual’s property (except any property that is exempt), sells (“liquidates”) it, and distributes the proceeds of the sale to the individual’s creditors. At the end of this process, any outstanding debts are discharged (eliminated). The creditors then chalk-up their losses and move on, while the individual must start anew with very little assets leftover. The Chapter 7 process generally takes about four to six months.
Not everyone is allowed to proceed under Chapter 7, however. To be eligible under Chapter 7, an individual must pass the “means test” (a mechanical formula that is used to determine who can and cannot repay some debt.) If it is determined by the court that the individual’s “current monthly income” is above a certain amount and the individual has the ability to repay some debt, the individual may be denied Chapter 7 relief and may be forced to proceed under Chapter 13. Most people who meet the eligibility requirements proceed under Chapter 7 because, unlike Chapter 13, Chapter 7 takes less time to complete and does not require the individual to pay back any portion of his or her debts.

Chapter 13 Bankruptcy
Chapter 13 differs significantly from Chapter 7’s liquidation method. Commonly referred to as an “Adjustment of Debt” or “Wage Earner’s Plan,” Chapter 13 focuses on using the individual’s future earnings, rather than liquidated property, to pay creditors. When an individual files under Chapter 13, a court-approved plan allows the individual to keep all of his or her property, but the individual must pay a portion of all future income to the creditors. This payout plan lasts for three to five years, depending on the circumstances and the court-approved plan. When the individual has completed the agreed payout plan, any remaining obligations are discharged.
Naturally, eligibility to proceed under Chapter 13 requires that an individual must prove that he or she is capable of paying a portion of his or her future monthly income to creditors for a period of three to five years. If the individual’s income is not regular or is too low, Chapter 13 may be denied. Likewise, if the individual’s total amount of debt is too high, the court may deny Chapter 13. Unlike Chapter 7, Chapter 13 takes much more time to complete. However, the major benefit of Chapter 13 is that the individual is allowed to keep his or her property.
Understanding the main differences between Chapter 7 and Chapter 13 can assist you in knowing which form of bankruptcy will most likely work best for you. Keep in mind, however, that because the bankruptcy process is complex and oftentimes requires professional knowledge to be successful, seeking professional help is your best bet.